Correlation Between Southwest Airlines and Alaska Air
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Alaska Air at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Southwest Airlines and Alaska Air into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and Alaska Air Group, you can compare the effects of market volatilities on Southwest Airlines and Alaska Air and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Southwest Airlines with a short position of Alaska Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Alaska Air.
Diversification Opportunities for Southwest Airlines and Alaska Air
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Southwest and Alaska is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Alaska Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alaska Air Group and Southwest Airlines is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Southwest Airlines are associated (or correlated) with Alaska Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alaska Air Group has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Alaska Air go up and down completely randomly.
Pair Corralation between Southwest Airlines and Alaska Air
Considering the 90-day investment horizon Southwest Airlines is expected to generate 2.7 times less return on investment than Alaska Air. But when comparing it to its historical volatility, Southwest Airlines is 1.35 times less risky than Alaska Air. It trades about 0.13 of its potential returns per unit of risk. Alaska Air Group is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 4,693 in Alaska Air Group on August 30, 2024 and sell it today you would earn a total of 575.00 from holding Alaska Air Group or generate 12.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines vs. Alaska Air Group
Performance |
| Timeline |
| Southwest Airlines |
| Alaska Air Group |
Southwest Airlines and Alaska Air Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Alaska Air
The main advantage of trading using opposite Southwest Airlines and Alaska Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Alaska Air can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Alaska Air will offset losses from the drop in Alaska Air's long position.| Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. American Airlines Group | Southwest Airlines vs. JetBlue Airways Corp | Southwest Airlines vs. Delta Air Lines |
| Alaska Air vs. American Airlines Group | Alaska Air vs. Southwest Airlines | Alaska Air vs. JetBlue Airways Corp | Alaska Air vs. Frontier Group Holdings |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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